Russian oil companies agreed to freeze production and asked for tax stability

Russian oil companies agreed to freeze production and asked for tax stability

MOSCOW, 1 March. The Russian President Vladimir Putin on Tuesday held a meeting with heads of Russian oil companies, where they agreed with the idea of stabilization of oil production at the level of January 2016, and asked about the stability of taxation. The meeting was attended by heads of “Rosneft”, “LUKOIL”, “Bashneft” and “Surgutneftegaz”, “Tatneft”, “Gazprom oil” and “Independent oil companies”.

Currently negotiations are underway about the possibility of freezing of oil production by leading countries-exporters of this raw material. So, on February 16 in the Qatari capital Doha, Ministers of oil of Saudi Arabia, Qatar, Venezuela, included in OPEC and Russian energy Minister Alexander Novak held talks on improving the price situation on the oil market. The parties expressed their willingness to save, on average, in 2016 oil production at the level of January of the current year, if other countries-oil producers will join this initiative.

The stability of the entire

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At the beginning of the meeting, the President informed the heads of oil companies, energy Minister Alexander Novak has already practically agreed on stabilization of oil extraction in the international arena, and asked whether they agreed with this idea. “The purpose of our meeting is that I would like for you to hear it: do you support the proposal of the Minister, how do you feel about that?” – said the head of state.

The President stressed the need to preserve the ongoing development of the oil industry. “Our goal is to preserve the stability of the oil industry, to ensure its ongoing development and implementation of long term projects,” he said.

As reported to journalists following the meeting, the Minister of energy of the Russian Federation, “the company confirmed their plans for 2016 on exploration and development drilling, development of deposits”. “For those licenses that were issued in previous periods. It is really important that in a difficult situation, our company competitive,” he said. Novak also confirmed that the company supported the initiative of stabilizing the production as it gives predictability for market participants.

In turn, oil companies asked the President to maintain a system of taxation for the industry. The Minister noted that the companies ‘ plans can only be achieved if the tax system would not be innovation related to the increase in the tax burden. Novak added that a final decision on the matter “will depend on the situation, and this will be discussed in the government first, and then presented to the presidential level.” The Minister clarified that no decision about this today was not taken, but “the President heard of the company”.

15 countries and Iran

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Novak said that the decision to stabilize the oil production was publicly supported by 15 countries-exporters, therefore, even without Iran it will be effective, although the Republic of possible individual conditions.

“Today, more than 15 countries have already confirmed publicly expressed their willingness. On the basis of those positions which were publicly announced, we can say that exporting countries – 73% of the physical volume of oil production, voted for the freeze, it’s a critical mass of those countries that can negotiate,” he said.

Answering the question about the situation with Iran, the Minister said that “even without Iran, the decision will be effective”. “Iran today is a special situation because it is at the lowest levels of their production and so it is, in my opinion, could be treated individually, with a separate decision,” said Novak.

On 17 February in Tehran passed negotiations of Ministers of oil of Iran, Venezuela, Iraq and Qatar, who discussed the possibility of “freezing” the level of oil production. Following the talks, the Iranian oil Minister Bijan Namdar Zanganeh said that Iran would support any initiative to improve the situation with oil prices. During the negotiations Iran has taken the position that the country needs to recover market share lost during the years of sanctions. Prior to the introduction of restrictions in 2012, prohibited the export and the insurance of oil supplies, and financing industry from the outside, Iran was the second largest producer in OPEC. Then its daily exports averaged 2.5 million barrels.

Hour “x”

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Novak said that the final decision on stabilization of oil production can be taken in March, formats still to be discussed, most importantly the monitoring arrangements. “The initiative is still being discussed. Many countries expressed their support, then we will work together with other countries-members of OPEC and OPEC to agree to meet in March to consider adopting the final decision”, – said the Minister.

“In what format it will be done, yet to be discussed with colleagues. The format is not specified. The most important issue is monitoring the implementation of those agreements that can be achieved,” added Novak.

He stressed that stabilization of oil production do not pose a problem to raise prices above $50-60 per barrel, this will again lead to oversupply. “We were hoping that the market will start to be balanced. But, although prices fell in 2015, the volume of deals was still higher than in 2014 If you keep the offer at the level of January, this means that the proposal will not increase. While demand in any case will increase. Due to this, a surplus in a shorter time will leave the market. Is not the purpose of this balancing is to raise prices, because it affects market participants. The issue is that the protracted cycle of low prices to reduce at least one year”, – said the Minister.

The price of oil Brent following the results of 2015 fell by 49.6% since the beginning of 2016, down 15% to approximately $33 per barrel. The average price of Urals oil in January-February 2016 $29,69 per barrel. In 2015 the average price of Urals in January-February amounted to $51,81 per barrel.


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